Refinance Schemes

Rural Non Farm Sector (RNFS) holds the key to faster economic development of the country. It holds the potential and promise for generating employment and increased income in the rural areas. NABARD has, therefore, adopted RNFS as one of its thrust areas and has been promoting this sector through multi-pronged strategies. The strategies include :

NABARD provides refinance facilities to Commercial Banks (CBs), Regional Rural Banks (RRBs), State Co-operative Banks (SCBs), State Co-operative Agriculture and Rural Development Banks (SCARDBs), Scheduled Primary Urban Co-operative Banks and Non-Banking Finance Companies (NBFCs) to enable them to support the activities of small, tiny, cottage and village industries, handicrafts and other rural crafts in rural areas. Refinance is also provided for promotional and infrastructural support activities conducive to the development of tiny rural industries. NABARD refinance is available for setting up of new units and for modernisation/ renovation/ expansion/ diversification of existing units. Over a period of time, a number of schemes have been evolved and suitably modified from time to time. Currently they are classified as follows:

Automatic Refinance Schemes

Automatic Refinance Facility was introduced to enable the banks to obtain financial accommodation from NABARD upto certain limits, without going through the detailed pre-sanction formalities. Banks will appraise the proposals received, sanction and disburse loans for individual projects. Refinance is released to the banks based on a simplified drawal application and on their certification that the individual loans sanctioned conformed to the policies, procedure and guidelines laid down in the refinance schemes of NABARD.

The maximum refinance to a single borrower/ unit under ARF which was Rs.5 lakh in 1985 has been gradually increased in stages over the years, considering the increase in cost of investments and requests received from the banks. The present refinance limits under ARF are as under :

Note : For Co-operative Banks, the individual loan limit will be as per instructions issued from time to time.

All sectors/activities including the entire gamut of service sector activities that provide employment opportunities (directly or indirectly), generating income and improvement in the living conditions of the rural people are eligible for refinance support under the Investment credit with Automatic Refinance Facility (ARF). The details of the schemes covered under ARF are given below:

Enterprise Loan Scheme (ELS)

Borrowers

Individuals, artisans, small entrepreneurs, groups of individuals, associations (formal and informal), proprietary/partnership firms, co-operative societies, registered institutions/ trusts, NGOs/voluntary agencies, private and public limited companies, etc, financed by the above eligible institutions.

Purpose

Eligible activities

All manufacturing, processing, marketing and approved service activities in the SSI sector with emphasis on Cottage, Village, Tiny Industries, Rural Artisans and Rural Crafts.

All activities in rural areas or benefiting rural areas that are income generating and/or employment generating, including all service sector activities, are eligible activities under NFS for refinance assistance. For example :

Block capital will include the following:

Cost of land (to the extent of borrowers' down payment), workshed, plant and machinery, equipment and tools, computers, technology upgradation, project formulation and consultancy charges, preliminary and pre-operative expenses, etc. and working capital for one operating cycle.

While sanctioning loans, banks may carefully work out the credit requirements of the borrowers both for term loan and working capital. The quantum of working capital component may be assessed taking into account the incremental requirement also for a reasonable period within which the unit is expected to stabilise. Also, wherever the loan includes both term loan and working capital components, while drawing up the repayment schedule, it may be ensured that, as far as possible, the working capital component of the loan is recovered after the block capital component is repaid, so that the unit will have adequate funds for meeting the working capital requirements.

The repayment period should be fixed between 2 years and 10 years with a need based moratorium of upto 18 months for individual cases, based on the debt servicing capacity of the borrower and taking into account the nature of activity to be financed, operating cycle, cash flow and the borrower’s sustenance needs.

Borrowers

Individuals, groups of individuals including partnership/ proprietary firms and co-operative enterprises would be eligible for assistance under the scheme. The borrowers should be from the "rural areas" and should utilise the vehicle mainly for transportation of rural farm and non-farm products and inputs and passengers to/ from marketing centres.

Vehicles

• The vehicle should be duly registered with Regional Transport Authority (RTA) as 'public goods/ passenger carrier' vehicle.
• The number of vehicles to be financed shall be subject to the ceiling on such number as stipulated by RBI for financing under priority sector lending (at present 10 vehicles).
• Water transport units such as boats, launches, etc., are eligible to be covered.
• Financing small refrigerated vans, bulk carriers for edible oil, petroleum, etc., would also be eligible for refinance.
• Loans for purchase of second-hand vehicles are also eligible for refinance, provided the financing bank is satisfied with the valuation of the vehicle, documentation, economic life of the vehicle, etc.
• The loan component may include the cost of chassis, body building expenses, initial taxes, insurance, etc. The loan disbursement under the scheme should be made directly to the supplier and/ or concerned agencies.
• Two wheelers are not eligible for refinance under this scheme and can be covered under service sector activities of the Enterprise Loan Scheme.
• There is no restriction on the Gross Vehicle Weight (GVW) / tonnage of the vehicle proposed to be purchased.
• Financial assistance for purchase of additional vehicles will also be eligible, provided the same falls under Priority Sector Lending.
• Vehicles registered as 'private carriers' will not be covered under the scheme.

Security and Insurance

• The vehicle should be registered as 'public goods/ passenger carrier' with the Regional Transport Authority (RTA). The loan will be advanced against the hypothecation of the vehicle in favour of the financing institution. The hypothecation clause/ bank's lien should be noted with the RTA.
• The vehicle should be comprehensively insured for the full value covering all risks. The insurance policy may be either in the joint names of the borrower and the bank or assigned in favour of the latter. The vehicle should be adequately insured at all times without any break.
• The vehicle should be inspected periodically by the financing bank.

Objective

The objective of the scheme is to provide financial assistance to the prospective entrepreneurs who have the requisite talents and traits of entrepreneurship, but lack necessary monetary resources of their own for setting up units/implementing projects under NABARD refinance schemes for non-farm sector, SEMFEX II borrowers and innovative, high tech projects, export oriented units, agro-processing schemes, and agriculture graduates for setting up of Agriclinics and Agribusiness Centres.

Eligibility

The loan assistance towards margin money will be available to the entrepreneurs/promoters comprising individuals, proprietary/partnership concerns, groups of individuals, industrial co-operative societies, government/quasi- government agencies, promotional agencies, development corporations, registered and charitable institutions and voluntary organisations.

Soft Loan Assistance for Margin Money will not be available for SRWTO schemes (with the exception to SEMFEX II borrowers) and Rural Housing.

Mode of Assistance

Margin Money assistance will be by way of soft loans to the entrepreneur/ promoter.

Scope of assistance

Margin money assistance shall be available to the deserving entrepreneurs of all categories covered under this scheme under ARF whether or not the financing bank avails refinance from NABARD, subject to the conditions stipulated in the following paragraphs.

Quantum of Assistance

The quantum of assistance will be determined, among other things, on the basis of the gap between the normal level of borrower's contribution (margin) prescribed by RBI and the borrower's own minimum contribution (stake) for the project to be stipulated by the bank and also the other subsidies/incentives/assistance, if any, provided by the Central/State Government(s)/other Agencies.

The margin requirement will be in conformity with the RBI norms under priority sector and the bank may insist that the entrepreneur brings in the stipulated percentage thereof as his own contribution. The amount of assistance shall be equal to 100% of the shortfall in enterpreneur's/ promoter's contribution i.e. the difference between the margin requirement as per RBI norms and the actual contribution made by the entrepreneur upto 20% of the project cost, subject to a maximum of Rs.5 lakh.

The delinking of Margin Money assistance from availment of refinance is applicable only under ARF. Higher amount of Margin Money Assistance in excess of Rs 5 lakh per unit, subject to margin money norms as prescribed by RBI could be considered selectively by NABARD, Head Office on a case to case basis, where the project is either 100 % export oriented, innovative, high-tech or agro-processing and benefitting a large number of small producers. The assistance will, however, be available under pre-sanction procedure and only when the financing bank avails refinance from NABARD against the term loan.

Terms & Conditions

Extent of refinance :

Refinance assistance to the financing banks will be provided to the extent of 100% of the margin money loan.

Rate of interest /service charge:

The refinance assistance provided against the loan for margin money will be, for the present, free of interest. However, the financing bank will be allowed to levy a service charge upto a maximum of 5% p.a (except for Agri-Clinic/Agri-Business where it is 2% p.a) simple rate at the discretion of the bank, on the outstanding amount of margin money loan. In the case of borrowers of SEMFEX-II, the banks may waive the service charge at their discretion.

Repayment period :

Margin Money loan will be recovered along with the term loan in suitable instalments.

Drawal of Refinance

The refinance assistance to all banks (excluding SCARDBs) above the cut off level of ARF is available under pre-sanction procedure for the units under SSI sector. Under this, the banks have to submit the scheme/ project for prior approval of NABARD. NABARD appraises these projects and if found technically feasible and financially viable, sanctions refinance for the same. The banks are required to accept the terms and conditions of sanction of refinance in case of each specific scheme sanctioned by NABARD. Thereafter, the banks can draw refinance from NABARD to the extent of their non-overdue outstandings within the eligibility norms fixed by NABARD.

* Rural Housing was made an eligible activity from the year 2001-02.